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How to Play a Euro Pledge

Mario Draghi
Bloomberg | Getty Images
Mario Draghi

European Central Bank President Mario Draghi boosted the euro with his pledge to do what's needed for the euro zone. Here's how to trade the tough talk.

Mario Draghi sure knows how to move the euro. When Draghi, the European Central Bank president, pledged to do what's necessary to preserve the euro zone, the common currency jumped, taking other risk-sensitive currencies with it.

Paul Richards, head of global FX at UBS, is impressed. With Draghi's comments coming just a week before a European Central Bank meeting, "it was a very good reminder to the market that he does mean business," Richards told CNBC's Scott Wapner.

Once the euro settles down from its instant reaction to the tough talk, Richards expects it to enter a trading range until next Thursday's ECB meeting. He pegs the likely range at 1.2170, roughly the euro's level before Draghi's comments, and 1.2370.

But overall, in the wake of the Draghi pledge, Richards likes a risk-on trade. He wants to buy the Australian dollar against the dollar at 1.0390, setting a stop at 1.0260 and a target of 1.0650.

Dennis Gartman, author of The Gartman Letter, was also buoyed by Draghi's comments. He notes that Draghi underscored his determination, pledging that "'Believe me, there will be enough.' He can't back up," Gartman says. "You have to come up with something that is atomic in nature with a statement like that, and my guess is he's got it cooking."

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